Read Ecosystem services market programs in action, learnings from the first-ever application of regenerative cotton protocols in the US during the 2022/23 growing season. Through this on-farm, producer-centric pilot project in the Southeastern US, Forum and the Ecosystem Services Market Consortium (ESMC) tested how best to finance the transition in the cotton sector to regenerative production practices. 

In the year following our pilot to test the application of regenerative cotton protocols in the Southeastern US, we continued to track the opportunities that financing through payments for ecosystem services (PES) can provide, along with challenges and barriers to implementation and integration across multiple sectors and commodities. Forum's Natasha Mehta and Michelle Stearn explore how insetting and ecosystem service payments can better finance regenerative agriculture for farmers, while highlighting key challenges around scale, trust, and supply chain integration.

Insetting, or financial investments in ecological improvements made within a company’s supply chain, is consistently highlighted as a preferred method for transferring benefit from companies through to producers. While offsetting can engage a wider range of organizations outside the supply shed, insetting creates immense potential for long-term engagement, breaking down opacity of the supply chain and encouraging systemic shifts in relationships, contracting, and sustained investment. 

“Insetting leads to stronger relationships grounded it listening, farmers want to feel heard, and this creates more energy + buy-in for the program. Farmers want fairness, stability, and simplicity. Insetting allows for that."

- Timothy Bradford Jr. (T.J.), Ph.D., Senior Agronomist & Owner, Bradford Agricultural Consulting and Bradford Farms 

Insetting programs have the potential to provide a huge opportunity for farmers 

According to several farmers we interviewed, insetting can lead to stronger relationships grounded in listening: farmers want to feel heard, and this creates more energy and buy-in for the program. Farmers want fairness, stability, and simplicity. Insetting allows for that. 

At the same time, for many farmers, the question of scale can prevent inclusivity and result in lopsided benefits to larger-scale operations. Scaling is critical for addressing the climate crisis, improving ROI on ecosystem-service outcomes, and reducing carbon emissions. Yet inclusivity – particularly of Black and underserved farmers holding smaller acreages – can be at odds with scale. Current ecosystem service payment models pay per acre and per metric ton reduced, disadvantaging smaller producers and creating barriers to entry. 

Despite the high potential of PES programs to increase flow of capital to regenerative adoption, skepticism remains 

Multiple competing programs and histories of extractive business models make many farmers cautious of new initiatives. With so many programs being offered – there's a need for trust-based information. Tillery Timmons-Sims, the Director of Sandhills Area Research Association, emphasizes that “certifiers need to be more relational,” many third-party verifiers don’t know about how specific crops in their particular geographic areas are produced — which leads to more skepticism from farmers. 

 

Moving from pilots to full-scale integration 

For brands and downstream buyers, pilot fatigue can prevent real momentum from activating change at pace, and at scale. Brands are investing in various pilot programs and wondering, “What’s next?” Those we spoke with are eager to invest in experimentation, but fatigue sets in when they don’t see learnings from pilots integrated into their business models. There’s a need to move experimental innovation in financing into procurement budgets and away from philanthropically-funded programs or business cost centers.  

 

Middle actors: How can we engage the full supply chain? 

In many sectors, suppliers and aggregators can block engagement from brands directly to producers. One large company shared that downstream demand on suppliers for more regenerative practices could help move the needle, enabling suppliers to share clearer directives with farmers and remove a layer of dysconnectivity that was previously preventing that two-way communication across supply chains.  

Understanding impact: Following the data from farm to product 

This could also prove beneficial for data sharing and showcasing quantifiable impacts, because suppliers often serve as a clearinghouse for data from producers to share downstream with manufacturers, brands, and retailers about the ecological and social impacts of the raw materials that end up in our products. Sustainability departments need data to understand the impacts of their programs on the whole ecosystem – with ambitious brands even exploring ways to incorporate claims directly onto product tags. While reliable data to support consumer and Scope 3 claims has proved to be important, we need to make sure those data requests don’t overburden farmers. 

Programs need to make regeneration work financially for farmers - not ask them to take more risks 

At the end of the day, farmers and brands often have intersecting goals, the most visible and important of which is financial success. So when the asks of farmers put undue pressure on their operations, which often operate at slim profit margins, this can upset the balance. 

One way that downstream buyers can help mitigate this risk – in addition to paying for practice adoption and the associated ecosystem services outcomes – is to commit to being long-term off-takers for specific producers and the crops they choose to include in their rotation. This helps provide a layer of security for farmers who are shouldering immense financial risk by trying practices that are often outside of what banks, lenders, and other financial institutions deem appropriate. Increasing contract length while co-creating terms with farmers that meet their needs over time is an interim step that can support farmers to mitigate transition risks.  

For practitioners looking to measure progress on cost-sharing, see our framework for integrating social outcomes into ecological goals for regenerative agriculture programs. 

What’s next? Remaining questions to explore in community 

Join us to continue exploring the potential opportunities of innovative, inclusive financing models for the transition to regenerative agriculture. We’re still exploring: 

• How can we go beyond carbon in measuring ecological and social outcomes, like biodiversity, water quality, and farmer wellbeing + livelihoods? 
• How do we address claiming issues or “double-counting” when brands invest in similar supply sheds or across a crop rotation? 
• In what ways can brands and suppliers collaborate to demystify the traceability challenges that prevent buyers from investing directly in farmers? 

To explore these questions with our team, or to receive support on a challenge unique to your supply shed or project, get in touch with us at [email protected].